Industrial upgrading in the semiconductor industry in East Asia

ABSTRACT This paper seeks to assess industrial upgrading in the semiconductor industry in East Asia. Research into 25 firms, and subsequently the entire value chain specialization of these firms, as well as the filing of patents in the United States at the aggregate country level show that special focus on technological upgrading is critical to attract or stimulate firms’ participation in frontier R&D and wafer fabrication activities. Within these categories supportive R&D in assembly and test operations can be achieved in reasonably strong Science Technology and Innovation (STI) infrastructure in particular national locations endowed with strong basic infrastructure. Only in countries where frontier semiconductor research is carried out at universities and where a strong discipline-based incentive mechanism is around, have semiconductor firms established frontier R&D and frontier wafer fabrication activities, such as in Japan, South Korea, and Taiwan. China has embarked on upgrading to such activities since 2017 suggesting that it could follow the same path to maturity. Consequently, the evidence shows that semiconductor manufacturing is most sticky with the highest technological sophistication in Japan, South Korea, and Taiwan where the upgrading incentives and the STI infrastructure have been the most incisive, while China shows a promising movement in that direction.